Tax and Your Property Transactions

Seeff Property Group Chairman Samuel Seeff comments on the upcoming tax season and how it will affect prospective buyers and sellers.

You can start doing your tax and property transactions by visiting the SARS website, which offers various tax information, including what gets taxed, at what rate and what compensation you can claim in return.

Average homeowners, buyers and sellers can avoid concern regarding annual tax returns; however, those who own many properties should seek professional advice and assistance from a tax specialist. 

Visiting the SARS website or consulting a tax specialist will make you aware of some of the basic tax regulations:

Rules and Regulations When Purchasing Property

When dealing with property transactions, all acquisitions exceeding R1 million receive transfer duty tax, while new projects are exempt from transfer duty but receive VAT (Value added tax). The total purchase price is always subject to transfer duty, and you must pay this tax when buying a property.

In light of these rules and regulations, if you are a prospective buyer, you must pay this cost upfront alongside any other incidental costs (like bond registration and attorney fees) before registering the property in your name. Fortunately, SARS publishes the relevant transfer duty tables every year, and you can access this information via their website.

Rules and Regulations When Renting Out Property

When dealing with property transactions related to renting out a property, you must report rental income on your annual tax return and in your complete income statement; this remains true regardless of whether you rent out a single room or an entire property.

You can deduct certain expenses related to the rental property from your annual tax return; these expenses include property practitioner fees, property taxes, maintenance and upkeep fees and home loan interest.

Improvements and renovations to your property are not considered capital expenditures and therefore are not tax-deductible. 

You can adjust losses incurred due to a rental against other income; however, any ring-fencing rules still apply. You can speak with a tax professional for more information.

Rules and Regulations When Selling Property

When dealing with property transactions relating to selling a property, any primary or investment property sold for profit (known as a “gain” in the property industry) is subject to CGT (Capital Gains Tax). In contrast, a primary residence is subject to an R2 million exclusion.

You can calculate the base costs (buying price and cost of upgrades) and reduce them from the selling price to work out the taxable gain. When dealing with a primary residence, the net income exceeding R2 million is subject to CGT; however, CGT affects the entire net income in the case of secondary and subsequent properties.

Secondary properties do not receive the R2 million exclusion; instead, there is an R40 000 yearly exclusion. According to the SARS website, the CGT tax rate for individuals is now 18%.

Rules and Regulations for Remote Workers

The Covid-19 pandemic significantly affected tax property transactions due to the influx of employees who began working remotely and incurring expenditure from internet bills, phone bills and the cost of setting up home offices.

 If you are a full-time employee, you must do over 50% of your work from home, and if you earn on commission or receive variable pay, you must complete more than 50% of your offsite from your employer. Luckily you can deduct remote working expenses such as data, stationery and communication costs, provided you verify them. Under SARS regulations, you must claim the space before using it for work or earning an income; furthermore, you can only use it for those designated purposes.

The bottom line is that you must verify all of your expenses and then claim returns for proportionate rent, utilities, stationery, office supplies, telephone bills, furniture, maintenance and cleaning costs.